A NON-PARAMETRIC TEST OF THE SOLOW-SWAN GROWTH MODE

Abstract

This paper employs a non-parametric method called local regression to test the Solow-Swan model against the endogenous growth models. The visualization of the aggregate production function reveals the presence of diminishing returns to capital, in particular, at low level of capital labor ratio. However, the evidence did not contradict the models of endogenous growth in which the marginal productivity of capital is bounded from below. The local regression fit of the gross profit rate showed that it declined as the capital labor ratio increased. Overall, the results support the Solow-Swan model, but indicate that the endogenous growth models are a close approximation for countries with high capital labor ratio.